Cycles  |  JAN 2008

What Works, What Doesn’t In Stock Market History by Mark Vakkur

What Works, What Doesn’t In Stock Market History by Mark Vakkur Using Summary Statistics, In Over 60 Years And here for your education and edification, Standard & Poor’s 500 summary statistics from January 1945 to May 2007! Some factors are strongly correlated with rising or falling markets. Find out what they are, in part 1 of a two-part series. In trading, as in poker, it pays to know the odds. Although the Standard & Poor’s 500 is far from predictable, certain factors are strongly correlated with rising or falling markets. There is no guarantee that these relationships will continue, but comprehending 60 years of stock market history helps us understand when we’re holding a full house or a low pair. In this article, I’ll summarize and update an overview of several factors that over the years continue to influence stock market returns — earnings and dividend yield; interest rates; and seasonality, including month of year and the Presidential election cycle. THE S&P ITSELF: DESCRIPTIVE STATISTICS Before searching for extraordinary subsequent periods of S&P 500 performance, it is best to first define “ordinary.” To do this you must know the range of values in the S&P 500 historically. Since the variable of interest in this article will be the 12- month percentage change, I will start by examining all rolling (overlapping) 12-month S&P 500 percentage changes (excluding dividends) to get a feel for what “normal” is (Figure 1).

by Mark Vakkur, M.D.